Auditor Size and Going Concern Reporting

Berglund, Nathan R.; Eshleman, John Daniel; Guo, Peng

doi:10.2139/ssrn.2699810

Cited by 11 publications

(22 citation statements)

References 13 publications

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“…We also include Zmijewski's (1984) bankruptcy score ( ZSCORE ) and an indicator variable for whether clients received a GCO in the prior year ( LAGGCO ) 14 . We include the indicator variable DEFAULT because clients in default on debt are more likely to receive a GCO (Berglund et al 2018). We also control for clients issuing new debt or equity ( ISSUE ) because clients raising money from the issuance of new securities are less likely to receive a GCO (Mutchler et al 1997).…”

Section: Methodsmentioning

confidence: 99%

Investor Sentiment, Misstatements, and Auditor Behavior^*

Amin

Eshleman

Guo

2020

Contemporary Accting Res

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High investor sentiment has been linked with opportunistic managerial behavior in the face of more optimistic investors and analysts. We extend this line of work by documenting that the likelihood of misstatements is higher when sentiment is high. Although this would suggest elevated audit risk, we posit that a contemporaneous reduction in auditors' litigation cost could drive down audit fees and going concern opinion (GCO) reporting conservatism in order to please clientele. Consistent with this notion, we document that auditors charge lower fees and report GCOs less conservatively when sentiment is high. However, this reduction in reporting conservatism is unwarranted; results reveal that auditors are less likely to issue GCOs to clients which subsequently file for bankruptcy during high sentiment periods. We conduct additional tests to examine whether auditors' litigation costs indeed vary with sentiment and document that auditors are less likely to be sued and the market reacts less negatively to misstatement announcements when sentiment is high. Collectively, our findings suggest that, although misstatement risk is increasing with sentiment, auditors' litigation risk actually declines.

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Section: Methodsmentioning

confidence: 99%

Investor Sentiment, Misstatements, and Auditor Behavior^*

Amin

Eshleman

Guo

2020

Contemporary Accting Res

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“…Namely, all audit companies operated within the territory of Republic of Serbia, but the first group are the ones that do not belong to an international group (parent company or subsidiary). Numerous authors (Berglund, Eshleman, & Guo, 2018) (Fargher, Jiang, & Yu, 2017) (Gaynor, Kelton, Mercer, & Yohn, 2016) (Swanquist & Whited, 2015) investigated the association between the size and methodology used by auditing companies and audit quality and other aspects of audit client business. Some of them found an evidence that Big 4 companies provide audits of higher quality (Eshleman & Guo, 2014).…”

Section: Methodsmentioning

confidence: 99%

Empirical Data on Financial and Audit Reports of Serbian Business Entities

Mizdraković¹,

Stanić²,

Mitić³

et al. 2020

Proceedings of the 7th International Scientific Conference - FINIZ 2020

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“…We select our control variables based on prior research (Berglund, Eshleman, & Guo, 2018;Geiger & Rama, 2006) (see Appendix A). We select our control variables based on prior research (Berglund, Eshleman, & Guo, 2018;Geiger & Rama, 2006) (see Appendix A).…”

Section: Profit Liquid Cashflow Solvency Tec_def and Pay_defmentioning

confidence: 99%

“…We select our control variables based on prior research (Berglund, Eshleman, & Guo, 2018;Geiger & Rama, 2006) (see Appendix A). Our dependent variable can be affected by client characteristics such as client's size or financial condition.…”

Section: Logistic Regressionmentioning

confidence: 99%

Are going‐concern issues disclosed in audit reports associated with subsequent bankruptcy? Evidence from the United States

Desai

Kim

et al. 2020

Int J Auditing

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The Public Company Accounting Oversight Board (PCAOB) has expressed interest in the following issues related to going-concern modified audit opinions (GCOs): auditor's communication of factors that led to the GCO, the role of liquidity versus other factors in GCOs, and the subsequent failures of clients with GCOs. We use a sample of 2,921 first-time GCOs spanning the years 1999 to 2015 in the United States and find that profitability factors are cited in 81% of GCOs while liquidity issues are cited in 56% of GCOs. Overall, 16.8% of the first-time GCO clients entered bankruptcy within one year. After controlling for the probability of bankruptcy, client size, and auditor type, for clients of Big N auditors, the disclosure of profitability factors in the GCO is associated with a higher likelihood of subsequent bankruptcy; in contrast, for clients of non-Big N auditors, disclosures of liquidity and solvency problems are associated with a higher likelihood of subsequent bankruptcy. Our findings provide an empirical grounding for the debates surrounding GCOs and provide useful information for standard-setters and financial statement users. should be more descriptive and that auditors should highlight those factors that led to their decision to issue a GCO. 3 Thus, we use a more detailed categorization than Menon and Williams (2010) who provide evidence about the presence of three broad categories of reasons in GCOs (poor financial performance, financing, and operating) during the years 1995-2006.

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Auditor Size and Going Concern Reporting

Cited by 11 publications

References 13 publications

Investor Sentiment, Misstatements, and Auditor Behavior^*

Investor Sentiment, Misstatements, and Auditor Behavior^*

Empirical Data on Financial and Audit Reports of Serbian Business Entities

Are going‐concern issues disclosed in audit reports associated with subsequent bankruptcy? Evidence from the United States

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Auditor Size and Going Concern Reporting

Cited by 11 publications

References 13 publications

Investor Sentiment, Misstatements, and Auditor Behavior*

Investor Sentiment, Misstatements, and Auditor Behavior*

Empirical Data on Financial and Audit Reports of Serbian Business Entities

Are going‐concern issues disclosed in audit reports associated with subsequent bankruptcy? Evidence from the United States

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Product

Resources

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Investor Sentiment, Misstatements, and Auditor Behavior^*

Investor Sentiment, Misstatements, and Auditor Behavior^*